Electronics was recently the largest position in our Fidelity Select Model Portfolio, reflecting our view that long-term potential for the chipmakers is greater than that of other sectors, explains Jack Bowers, editor of Fidelity Insight & Monitor.
This industry has higher margins than most others and is also one of the fastest growing. But coming off the financial crisis and the PC bust (both of which created a lot of excess capacity) stock valuations are relatively cheap.
Now that PC chipset sales have stabilized, demand for mobile devices, storage, and the Internet-of-things has the potential to pick up the slack.
More importantly, a slowdown in construction of new state-of-the-art facilities may give the chipmakers more pricing power than they’ve had in the past.
My aggressive pick for 2015 is Fidelity Select Electronics (FSELX). The chipmakers are among the fastest and highest margin growth companies around, yet their valuations are still relatively cheap at a time when semiconductor demand is growing and fewer firms are expanding capacity with new state-of-the art facilities.
There are some risks; sector volatility is high and earnings can be hurt when the dollar rises. But we still think this fund is the best opportunity in the tech arena.
